What Is the ‘Howey Test’ and Its Relevance to Token Classification?

The Howey Test is a legal framework established by the U.S. Supreme Court to determine if a transaction qualifies as an 'investment contract,' and thus a 'security.' It is relevant to crypto because if a token is deemed a security, it falls under strict SEC regulation. The test requires an investment of money, in a common enterprise, with an expectation of profit, to be derived from the efforts of others.

This is the primary legal standard used to assess if a token sale constitutes an unregistered securities offering.